- Four-week average of U.S. jobless claims lowest since November 2007.
- Focus turns to debate within FOMC on whether to slow down or expand the pace of stimuli.
- USD/JPY breaks above 100, the first time in over four years.
Markets overnight
• U.S. initial jobless claims data came out better than expected, dropping to 323K from a revised 327K the week before. The four-week average dropped back below pre-crisis levels at 336,750 – the lowest level since November 2007.
• After yet another positive surprise in the U.S. labour market data yesterday, which increases the probability of the recent ‘soft patch’ in the U.S. economy’, focus has once again turned to the debate within the FOMC whether to slow down or expand the pace of its bond purchases. Given the recent positive surprises in labour market data, the latter obviously seems less likely at this stage. Last night, Federal Reserve Bank of Philadelphia President Plosser fuelled speculation that the Fed might soon start to signal a scaling down of its quantitative easing, saying that unemployment will probably fall to 7% at the end of 2013 and that he would favour reducing the Fed’s monthly bond purchases as soon as next month.
• In the FX market, the dollar strengthened against all currencies in the G10 sphere on the back of renewed talk of the Fed scaling back on its bond purchase program. The USD/JPY broke above 100 for the first time in over four years.
• US stock indices declined yesterday. The S&P500 ended the session down by 0.4% at 1626.67 following five consecutive days of record closing highs. This morning, most Asian stocks are trading in positive territory led by a strong increase in Japanese stocks, as further JPY weakness combined with an ongoing recovery in the U.S. economy bodes well for Japanese exporters. Nikkei is up 3%, while Hang Seng is down 0.2%.
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